February 17, 2016
Fraudulent loans are on the rise in China as economic growth slows, threatening to further undermine the country’s $29tn banking system, which is already under pressure from an indebted corporate sector. A series of loan frauds has ripped holes in the balance sheets of a range of lenders, from the large — Agricultural Bank of China — through to the phalanx of small commercial lenders.
The latest victim to emerge is Bank of Liuzhou where $4.9bn (Rmb32.8bn) in fraudulent loans were discovered by the bank late last year, according to the state-backed China Business Journal. That represents more than 40 per cent of the bank’s total assets of Rmb80bn at the end of 2014 — a dent so large on the bank’s balance sheet that it is likely to require government intervention.
The case is one the country’s biggest banking frauds in decades. This followed China Citic Bank, the country’s ninth-largest bank by assets which late last month said it was investigating a $147m fraud.